Who are the IRS’s favorite superheroes?  The X-Men.  The IRS loves to hear from ex-spouses, ex-business partners and ex-employees about taxpayers who may not have fully met their federal tax obligations.  The IRS even has official “Whistleblower” programs that reward people for dropping a dime on their follow taxpayers.

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to thirty percent of the additional tax, penalty and other amounts it collects.  The IRS only pays awards to people who provide specific and credible information to the IRS and the information results in the collection of taxes, penalties and interest from the target taxpayer.

Internal Revenue Code IRC Section 7623(b) provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed two million dollars, and a few other qualifications are met, the IRS will pay fifteen percent to thirty percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than two hundred thousand dollars.  The IRS has another award program for whistleblowers who do not meet these income thresholds. The awards through this program are less, with a maximum award of fifteen percent up to ten million dollars.

If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.

However, anyone thinking about submitting information under the Whistleblower programs will want to consult with a qualified tax attorney for two main reasons.  The first reason is that a qualified tax attorney can make sure that the Whileblower will not be subject to blow back from their whisleblowing activities.  Many “exes” may be jointly liable for the very taxes that they are providing the IRS information about.  Most clear thinking people would not want to engage in the tax equivalent of a murder suicide pact.  A qualified tax attorney would also help in guiding the whistleblower through the procedural steps of the whistleblower program.

Also, do not think that the Whistleblower programs are a way to get rich quickly.  In a 2010 GAO report to Congress on the program, the IRS said whistleblowers are told that completing a claim could take five to seven years and sometimes longer.   Of course most whistleblowers are motivated by “doing the right thing” and not by revenge on someone who wronged them.

On the other hand, the Whistleblower programs are a reminder that you should not play fast and loose with federal tax rules, especially if there are others around who can drop a dime on you later.  Information is the most valuable commodity; don’t give it away to someone who can use it against you later.

The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Reid & Hellyer, APC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.